• Jerome Powell’s webcast will shed some light on what the Fed expects over the next six months.
• Powell is unlikely to suggest a v-shaped recovery, even in a best-case scenario.
• His comments could inject a healthy dose of reality into financial markets, leading to a stock market crash.

On Thursday, Federal Reserve Chair Jerome Powell will deliver a prepared address via a live webcast at a think tank . Powell’s remarks will come soon after the Fed’s meeting minutes showed U.S. central bankers were concerned about the direction of the economy at their two March meetings.

Powell’s Remarks Will Clarify Fed Meeting Minutes

The Fed meeting minutes revealed that the meeting’s participants believed the direction of the U.S. economy had become “profoundly uncertain.” At the March 15 meeting, the central bankers predicted two possible economic recovery scenarios — one in which the U.S. economy recovers during the second half of 2020, and another suggesting Americans would continue to endure economic pain until 2021. 

Notably, a lot has happened since that March 15 meeting. The number of Americans who filed for unemployment over the past two weeks approached 10 million, and that figure is expected to continue growing when jobless data comes out on Thursday. 

Comments from other Fed officials in recent days suggest the bank is preparing for the worst. On Wednesday, Chicago Fed President Charles Evans cautioned that at this point, the economic damage from coronavirus would be severe .  

The economic downturn will be deep. There’s no getting away from that. Even under a best-case scenario, the U.S. and global economy will be less prosperous coming out of this crisis than we were going into it. We are all using valuable resources and savings that we had intended to use for other aspirations.

Which Scenario Are We Facing?

Addressing the nation is a policy tool for the Fed, in March Powell appeared on the Today Show to offer an economic update. But the interview was also primarily seen as a way to calm fears and build confidence  in the bank’s stimulus measures.

Thursday’s interview is likely the same as the Fed Chair tries to give a transparent look into the bank’s forecast without inciting fear and panic. Perhaps the most telling aspect of the interview will be which economic forecast Mr Powell is leaning towards— does he see the U.S. recovery coming at the end of 2020 or is he expecting a more prolonged downturn.

At this point, a recovery at the end of 2020 looks highly unlikely . Citigroup has forecast a $5 trillion decline in global economic output. JP Morgan says that figure will be closer to $5.5 million— similar to the losses seen during the 2008-2009 recession. And those are some of the best-case scenario forecasts. 

The Bank for International Settlements warned that a second wave of coronavirus outbreaks could see US GDP down 12% by the end of the year. 

Powell Could Cut the Market Rally off at the Knees

Optimism has pushed equities higher in an impressive rally that has taken the stock market back into bull territory. But most analysts agree that this is the calm before the storm— the market hasn’t priced in the economic devastation that’s likely around the corner.

While encouraging coronavirus numbers suggest Europe could be seeing its peak of cases, data in the U.S. is less telling. While Donald Trump has said he thinks the peak is upon us, others say New York is nearing a peak, but that other cities across America have yet to experience theirs . 

Of course, Powell doesn’t have medical experience and can’t make an accurate prediction about the state of coronavirus in the U.S.. Still, it’s likely that his best-case scenario isn’t the v-shaped recovery investors seem to be expecting. If Powell doesn’t confirm the economic rebound the market has priced in during its most recent rally, the Fed Chief could kick off a stock market crash. 

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Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com.

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